What is a 3PL? And Why Do Companies Use it?

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What is a 3PL Provider (third-party logistics company)?  

A third-party logistics provider, or 3PL provider, is an outsourced company that manages a part or all of your logistics and transportation operations and executes transportation, freight management, warehousing, and other activities. A 3PL company coordinates and manages functions for better transportation and supply chain efficiency in the simplest form. In fact, 81% of shippers agree that the use of 3PL providers improves services for customers.  

Why do businesses use third-party logistics providers (3PLs)?  

3PL providers may manage a single part or a multitude of different supply chain processes within your company. From warehousing to reverse logistics (returns) and everything in between, a 3PL lessens your workload, no matter the size of your individual business needs. To put it simply, companies use third-party logistics providers to manage their logistics operations in a productive and cost-efficient manner.  

3PL vs. 4PL: What is the difference?  

Both 3PLs and 4PLs are companies that help businesses manage their logistics functions; however, there are critical differences between the two types of providers. A 4PL has a more significant level of accountability, as they oversee the entire supply chain. A 3PL still involves a manufacturer but controls the transportation and logistics process. Essentially, 4PLs have extended functionality and mainly focus on general management and execution functions, while 3PL providers are more inclined towards operation, transportation, and warehousing activities.  

While the primary competency of a 3PL is moving freight, it also provides additional logistics services. A 4PL provider is essentially a 3PL with more responsibility. 4PLs are a service for companies that need more logistics and supply chain management coverage.  

Which services does a 3PL provide?  

If a company’s supply chain becomes too complex to manage internally, outsourcing to a 3PL is a great solution. You are still managing the overall logistics processes and strategy, but a third party handles the burdensome manual operations. Typically, a 3PL provides the following services:  

  • Freight forwarding  
  • Transportation management  
  • Load management & dispatch  
  • Warehouse and inventory management  
  • Supply chain management  
  • Technology integration  

What are the benefits of using a 3PL provider?  

Time savings  

Third-party logistics providers can save companies the time they typically spend managing their supply chain. Usually, 3PLs take over transportation operations and some managing functions, so the amount of manual work is significantly eliminated. Also, thanks to 3rd party logistics companies and their technology, you save time on automated paperwork, fewer organizational errors, and time spent arranging shipments.  

Continuous optimization  

3PLs can make modifications to each connection in the supply chain when needed. The company benefits from the constant improvements made to its logistics process when they outsource a logistics firm. One of the main goals of using a 3PL is optimization. These companies analyze your supply chain and operation and can define gaps and inconsistencies, helping you to optimize processes. A 3rd party logistics company goes through every step of your supply chain to determine the unnecessary operation and find the potential for cost savings.  

Cost savings  

A 3rd party logistics company provides more buying power, extensive carrier networks, and lower transportation rates. 3PLs also can help reduce the rate of returns, claims, shipping errors, and lost sales. Through industry connections and thorough analysis, 3PLs can cut substantial costs you are spending on freight transportation and logistics. Thanks to relationships with carriers and experienced freight brokers, 3PLs can negotiate lower rates for you and ensure to eliminate unnecessary costs.  

Carrier capacity  

3PLs give you access to the carrier capacity and required equipment needed to move your shipment regardless of the season. Through their relationships with thousands of carriers, third-party logistics providers ensure to support your freight volume. Also, they allow you to optimize inventory and warehouse management.

Technology visibility

A 3PL with a TMS is instrumental for insight into the supply chain. TMS technology provides the custom data you desire. TMS software is costly, so when a 3PL integrates the technology, you save money and get more accessibility to capacity. Shippers benefit from increased load consolidation, frequent backhauls, and optimized routing and distribution.  

Industry insights

3PLs have thorough industry knowledge and insights, and they can accurately forecast what will work best for their customers. They have the technology to produce advanced reporting and inventory management, tracking the entire logistics process. When companies choose to work with a 3PL provider, they fully reap these benefits as the 3PL truly becomes an extension of their team.  

How to choose a reliable 3PL?  

Industry expertise  

Transportation and logistics are complicated industries with stiff competition. If a company has survived on the market and established itself, there is a good chance they are trustworthy and reliable. Pay attention to how many years of experience a logistics provider has. Additionally, look at their expertise, field, and specialization.  

Range of services  

Essentially, services are what you will need from the freight shipping company in the first place. Clearly define which services you need to support your business. Once you’ve determined your needs, look at the shipping providers with expertise in a particular field and service. It’s important to ask yourself the following questions during your research:

  • What companies are they currently servicing?
  • Do they offer all the services that my company needs?
  • How do they differentiate themselves from competitors?

Carrier network  

It doesn’t matter if you ship cross-country or globally; you want skilled carriers and access to capacity. A vast network of reputable carriers is a ‘must-have’ in a good freight shipping company. Depending on the provider’s primary field, the ratio of carriers can vary.  

Customer service  

When you’ve decided on a few suitable options, it’s time to do the final check: customer service. A good company cares about prospects and customers and will answer your questions. Look at its communication during the quoting or sign-on process to define whether the chosen provider will deliver a positive customer experience. Whether you’re asking for a freight quote or general consultancy, a reliable shipping company will help you and respond on time.  

Values  

Matching value is a cornerstone of any successful 3PL relationship. Successful 3PLs know their core values and stick to them. Know what you are looking for, and don’t compromise your values. What is essential for a successful partnership? Integrity, accountability, and flexibility. Company culture goes along with values, not only on paper but in everything a company does.  

Contact us today for a free transportation cost analysis to learn more about our company and see first-hand how a 3PL can help you manage your logistics.

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